Freedom to Tinker

Malcolm Gladwell has an interesting piece in the Nov. 22 New Yorker, reflecting on the discovery that Frozen, a Broadway play, included language lifted from an earlier Gladwell article.

Equally interesting is the reaction of Dorothy Lewis, a New York psychologist who was the subject of Gladwell’s earlier article. One of the characters in Frozen is very similar to Lewis, to the point that Lewis’s friends and colleagues see the character as being Lewis. Lewis may or may not have a legal remedy, but she feels violated, especially since the character commits an indiscretion that Lewis herself did not.

And yet the public outcry over Lavery’s copying, such as it is, points to the copying of wording, rather than any of the other copying that occurred. Why? Gladwell’s exploration of this question is worth reading.

Gladwell correctly separates questions of copyright law from those of plagiarism.
Perhaps this is what distinguishes his view from the conventional wisdom that he describes and then ultimately rejects.

Little by little, the legal rules of copyright are infecting our understanding of plagiarism. Kids, who used to be taught that certain kinds of copying are wrong, or at least disapproved by adults, are now taught about copyright instead. Last year a third-grader told me that it’s wrong to copy a friend’s homework, because the homework is copyrighted.

Adults make the same mistake too. High-profile plagiarism accusations usually point to textual similarities, as if the underlying sin could have been blotted out by a bit of rewording.

This is a shame. Our plagiarism norms exist for a good reason. Intellectual life is about more than copyright.

[link credit: Joe Gratz]

Continuing yesterday’s discussion of the new Rob/Waldfogel filesharing study, let’s look at the possible effect of authorized downloading services.

As we saw yesterday, one of the main findings of the study is that people derive lots of benefit (about $45 annually per capita for the study’s sample population) from downloading songs that they don’t value enough to buy. In the absence of filesharing, this would have been deadweight loss.

Suppose that CDs cost $15 and that the (marginal) cost of producing and distributing one more CD is $2. Suppose further that Alice would be willing to pay $9 for a particular CD. If the record company could somehow sell Alice the CD for a price between $2 and $9, Alice would buy it and both parties would be better off. The total welfare gain would be $7, the difference between Alice’s valuation of the CD and the cost of providing it to her. But if the record companies have to charge everybody the same price for a CD, they would be foolish to lower everybody’s price below $9 – that would increase their unit sales but lower their total profit. So they’ll keep the price at $15 and a mutually beneficial sale to Alice won’t happen – that’s deadweight loss.

If it’s impossible to sell Alice the CD at a price she is willing to pay, then there is economic benefit in letting Alice download the album without paying – Alice gets the music, and the record company doesn’t lose anything since it wouldn’t have made a sale anyway. Some value that would have been lost is instead being captured by Alice.

But if the record companies can price-discriminate, that is, if they can charge different prices to different people, then they might be able to sell Alice the CD for $8 without lowering the price they charge anybody else. If they can somehow do this, they can eliminate the deadweight loss. But they can only do this if (a) they have some way of guessing how much individual customers are willing to pay, or at least some way of segmenting the customer population into groups that are willing to pay different amounts, and (b) they can prevent people like Alice from buying the CD at $8 and then reselling it to somebody who is willing to pay more.

It’s hard for record companies to price-discriminate in the traditional CD market, but maybe it’s easier for them to price-discriminate by using online music services. Maybe they can cook up a pricing plan that causes people who like a song more to pay more for it. I don’t think anybody really knows how well the industry could price-discriminate in such a scenario.

If, somehow, the industry could price-discriminate perfectly, so that they charged each user just exactly the maximum he was willing to pay for each song, then the deadweight loss would vanish – into the industry’s pockets – and downloading would turn out to be harmful. (Remember, if our goal is to maximize total welfare, we care only that the deadweight loss is gone; we don’t care who pockets it.)

But if we assume, more realistically, that the industry’s price discrimination strategy will have only limited success, then we can’t say whether filesharing will turn out to be harmful. We know that filesharing eliminates $45 (per capita) of deadweight loss. If price discrimination eliminated less than $45, then filesharing would still look like a good idea, considering only direct effects. We know the indirect effects (less music being produced, because of reduced industry incentives) of downloading will be negative, but we don’t know if they’ll be large enough to overcome the positive direct effects.

At the end of the day, the Rob/Waldfogel study doesn’t tell us whether filesharing is helpful or harmful, from the standpoint of total welfare. (Nor, to its credit, does it claim to do so.) What it does tell us is that downloading eliminates a lot of deadweight loss. And so it weighs on the scale – very lightly, to be sure – against the proposition that downloading is harmful.